Home  Journals  International Accounting  34(328) - 2014 September

Advantages and disadvantages of alternative options of inventory accounting under the standard method

Available online: 6 October 2014

Subject Heading: ISSUES ON ACCOUNTING

JEL Classification: 

Pages: 8-17

A reform of accounting system, amendments to legislation and implementation of the International Financial Reporting Standards imply the use of professional judgment by an accountant. Accountants choose the most rational accounting method enabling to generate relevant information in the accounting system of an organization, which meets the needs of all stakeholders. The authors have set a goal to identify the advantages and disadvantages of alternative variants of synthetic and analytical accounting for inventories using the standard method of accounting for cost of manufactured goods (performed work and rendered services) as the most progressive method in the modern conditions of developing micro-economic relations of economic entities and converging the Russian accounting standards with international standards. The study has enabled to conclude that the classic case of applying Account 40 "Manufacture of products (works, services)" significantly complicates the accounting, namely leads to tax differences, balance sheet and income statement data distortion, and encumbers the analytical accounting for deviations between actual and standard cost of final product. The authors propose an alternative method of accounting for finished products using an additional sub-account "Deviation of actual cost of finished goods from the book (standard) value", which is opened to Account 43 "Finished products". The sub-account enables to resolve the difficulties emerging while using Account 40 "Manufacture of products (works, services)" and to improve the transparency and information capacity of accounting and reporting. The authors propose to apply a similar approach not only to finished products, but also to other types of inventories. To supplement the theory the authors provide specific examples of account structures, their correspondence and account ledgers.

Keywords: standard method, cost accounting, inventory accounting, actual cost, finished product, standard cost, deviation, inventory

References:

1. Order of the RF Ministry of Finance “On Recommended practices of inventory accounting” of December 28, 2001 № 119n. (as amended of December 24, 2010) (In Russ.)
2. RF Federal Law “On Accounting” of December 06, 2011 № 402-FZ. (as amended of December 28, 2013) (In Russ.)
3. Order of the RF Ministry of Finance “On Chart of Accounts of financial and economic activity of organizations” of October 31, 2000 № 94n. (as amended of November 08, 2010) (In Russ.)
4. Draft Accounting Regulation “On Inventory accounting”. Available at: Link. (In Russ.)

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